VAT recovery on acquisition costs: lessons to be learned
The Court of Appeal has rejected BAA’s claim for recovery of input tax incurred on professional fees invoiced to a company that acquired it and that subsequently became a member of its VAT group. This case reinforces the lessons about the steps that need to be taken to enable VAT on takeover costs to be recovered. There are significant traps for the unwary.
Airport Development and Investments Limited (ADIL) had been formed as a bid vehicle for the takeover of BAA plc and its subsidiaries. BAA and its subsidiaries were part of a VAT group at all times. ADIL received advice from investment banks and lawyers in connection with the share acquisition and incurred significant input tax on the costs of that advice. ADIL became a member of the BAA VAT group nearly four months after the takeover completed. The representative member the VAT group, BAA, sought to reclaim the input tax which ADIL had incurred, on the group’s VAT return. The group made taxable supplies.
It was agreed by all parties that, to reclaim the VAT, ADIL had to show that at the relevant time, i.e. when it incurred the VAT, it was carrying on an economic activity, and that it was a taxable person for VAT; and that the VAT on the costs had a “direct and immediate link” to the taxable supplies of the BAA VAT Group of which ADIL subsequently became a member…
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